Something strange is happening with oil. It doesn't rally on escalations in the Middle East and falls when the fires in the region calm. That was the case with the Israel–Iran confrontation and then the US–Iran standoff. Yet Rystad Energy warns Brent could jump to $150/bbl if Tehran responds to Washington tit for tat. It's no wonder investors are watching Iran closely.

Brent (North Sea) price dynamics

What actually happened is what should have happened: the period of fear passed. At the start of the Middle East conflict, there was a lot of talk about Brent hitting $200/bbl, since a closure of the Strait of Hormuz would have seemed catastrophic — roughly 20 million b/d transited it in peacetime. Even if Saudi Arabia managed to reroute 5 million b/d, the gap is still striking.

In practice, it wasn't as bad. After 100 days of confrontation in the Middle East, Brent is trading below $100/bbl. Flows are one thing, balance is another. Before the conflict, the oil market was in a record surplus of 3–4 million b/d, and that helped restrain the North Sea rally.

China's oil imports

China played an important role in preventing a recession tied to the biggest oil shock. Before the conflict, the country was supporting prices by importing about 11 million b/d. Now it is preventing prices from rising, cutting purchases to a ten-year low of 7.8 million b/d in May.

The crude market is cyclical: price increases lead to lower global demand and a fall in Brent. Similar dynamics are visible outside China. Bloomberg estimates refinery crude runs have fallen by 5 million b/d.

Don't forget alternatives: Gulf countries have been finding alternate routes, throughput in the Strait of Hormuz has recovered from March lows, US exports have risen to a record 5.6 million b/d from about 4 million b/d, and inventories are being actively drawn down. US stocks have declined for nine consecutive weeks.

It becomes clear the oil market has adapted, and news of renewed US–Iran talks serves as a catalyst for selling Brent. At least three Reuters sources in Tehran said the sticking point in the dialogue is the scale of Western unfreezing of Iranian assets.

Technically, on the daily chart, Brent has bounced off fair value at $95/bbl. That increases the risk of a continued corrective move into the uptrend, which could develop into a new trend. A break of pivot supports at $91.35 and $89.55/bbl would allow the formation of short positions in the North Sea grade.